# All Questions

198 views

### self-consistent parametric form for equity implied volatility

I recall reading a paper, but can't remember where I found it. In short, there was a parametric form for volatility smile/skew that fit both index and single stock vol slices and had intuitive ...
375 views

### VaR for corporate bonds

I am trying to create a simple risk calculation for the portfolio (ignoring correlations for the moment). I have some corporate bonds with limited daily price changes. Any one have ideas how I can get ...
361 views

### Connections between random walk and heat equation (Material for ~)

I am preparing an undergraduate lecture in quantitative finance and I am looking for material that combines the topics: random walk and heat equation The material should be accessible ...
88 views

### forward- and backward adjusting stockprices

Do you guys know if a paper has been published that discusses forward- and backward adjusted stockprices, and the look ahead bias coming from backward adjusted data?
326 views

### Data feed API that uses REST?

Is there a data feed provider that has a REST (http) API? Preferably real-time and historical, at least for US equities.
2k views

### Can the Hurst exponent be greater than one?

Can the Hurst exponent be greater than one? Does it mean that the time series follows a random walk or that it's not stationary?
210 views

### Alternative liquidity measures

I'm going to write the MSc thesis on flight-to-liquidity phenomenon in stock markets and I'm interested in liquidity measures other than Amihud or bid-ask spread. What are some other popular measures ...
362 views

### Calculating the right portfolio(position size for each leg) in a Long/Short Strategy

For a Long/Short Strategy, I have two stocks with different volatilities. How can I calculate the right position size for each leg? *The pair trading is not coming from co-integration but more as a ...
324 views

### .NET statistical packages recommendation

What open source or commercial .NET statistical package would you guys recommend? I am doing statistical arbitrage in options. The functions I need mainly are regressions, optimizations..etc. It would ...
262 views

### Risk neutral probability in binomial short rate model assumed to be 0.5?

This should be a basic question but I have not been able to find a satisfying explanation. In the simplest binomial model, the risk neutral probability is computed using the up/down magnitude and the ...
209 views

### Construction of “vol of vol”

How do you construct something that lets you buy "vol of vol"? not necessarily for VIX, but any particular stock or index.
631 views

### How to transform process to risk-neutral measure for Monte Carlo option pricing?

I am trying to price an option using the Monte Carlo method, and I have the price process simulations as an inputs. The underlying is a forward contract, so at all times the mean of the simulations is ...
359 views

### Order and position management in (semi-)automated trading system

A simple and lazy approach to implementing an order and position management (OPM) component in a (semi-)automated trading system: leave most OPM to counter party (broker/exchange). Even then funds ...
177 views

### Minimum variance hedge with more than one asset

My portfolio comprises of 3 assets A,B,C that are correlated and the variance-covariance structure is known. At any given point in time, my position in Asset A say is given to me. I need to ...
508 views

### Does Interactive Brokers (IB) have a Web friendly API?

The requirement I am given is to implement a web ppplication which utilizes Interactive Brokers's API to fetch data. I went through the IB API web page and came across two viable methods: TWS and IB ...
548 views

### Multi Factor Credit Risk Models

I am working in the area of building credit risk models. Upto this point, the model I have been focused on using the Asymptotic Single Factor Model, more popularly known as Vasicek Single Factor ...
488 views

### Statistical significance of trading systems that use indicators with long lookbacks

Let's say we have a trading system that trades daily, holding for one day, but uses an indicator that looks back over the last 5 years. A simple example could be the percent change in price of an ...
389 views

In high frequency and low latency trading, decisions are done on the spot by servers colocated in stock exchanges. This implies that those servers have immediate access to the information they need to ...
246 views

### Resources for performance statistics of trading systems

I'm looking for an online resource to study the usual performance statistics (CAGR, MaxDD, Payoff Ratio, Win/Loss Ratio, etc.) of trading systems, preferably trend-following systems. I know that ...
451 views

### Where do swap rates and/or long-term forward rates come from?

I apologize if this is supposed to be obvious, but ... . Libor spot rates are quoted up to a year, beyond that one can use Eurodollar futures to continue to build the curve. Let's say up to 3 years. ...
640 views

### Searching for pairs-trading in sub O(n^2 t) time

Let there be $n$ stock symbols. Let each stock symbol have exactly $t$ ticks (with all ticks miraculously aligned.) We are now searching for potential pairs for pair trading. A brute-force solution ...
341 views

### Major FX pairs - Pentahedron Data Structure

I read an interview today with Stephane Coquillaud. He talked about this idea of formulating a data set of the G5 currencies as a pentahedron. The obvious benefit is the fact that there is more ...
136 views

### Why for one year (and not two or three) government bonds (there is a spike for Switzerland & Denmark)?

On 10.10.2012, I have looked at the bond-rates and, both for Switzerland and Denmark, there is a discontinuity/spike at 1Y, as per below Switzerland: ON= -0.09, 1W= -0.180, 1M= -0.230, 3M= -0.2, 6M= ...
347 views

### Which objective function should I choose to minimize tracking error?

Let say I have $n$ assets and their returns over $m$ periods which are represented by a matrix $X \in \mathbb{R}^{m \times n}$, and I have some other asset with return over the same period which is ...
441 views

### Oscillatory time-series forecasting

I was wondering if this mean(160)-reverting/oscillatory time series "SUM" can be considered chaotic & forecastable to some extend short-term? ...
443 views

### CARA Utility function expected utility

I have been trying to undestand how the expected utility for a CARA negative exponential Utility function is calculated. In my particular case the variable has normally distributed returns. Could ...
74 views

Why does dividing daily returns by daily range eliminates fat tails and results in an (almost) gaussian distribution? And how could that distribution be exploited to enter trades?
136 views

### How do I model risks for specific short-term short calls in a portfolio with limited data?

I'm trying to do some risk analysis on a portfolio of bonds, currency, stocks and short calls. The short calls expire in approximately 15-30 days and I've only got around 20 days of pricing data on ...
172 views

If a linear sum of options is constructed such that the premium payout is zero, then does it mean that resultant greeks of the cumulated options positions will be nearly zero. For simplicity, lets ...
593 views

### Trading a synthetic replication of the VVIX (volatility of VIX)

In the same spirit as this question: Trading a synthetic replication of the VIX index. The VVIX tracks the volatility of the VIX. One cannot directly buy and sell the VVIX index and, as opposed to ...
118 views

### Discrete-time Jump-Diffusion Model

I am wondering if anybody could point me to any literature that talks about a discrete time version of the jump-diffusion model, I am aware that there is a paper by Amin (1993) that shows a discrete ...
536 views

### Detrending price data for analysis of signal returns

I'm looking to conduct hypothesis tests on some of my trading signals to see if the signal returns are statistically significant enough to falsify my null hypothesis that the signal has no predictive ...
133 views

### In Yahoo! Finance, what determines the number of decimals for a stock/index quote?

In Yahoo! Finance, we see the following quotes among others: ...
122 views

### How to properly cross-validate when optimizing SVM classification?

I'm using SVM binary classification to predict movement of NASDAQ stock prices. My question is regarding cross-validation. I will divide the training data into V subsets. Training will be performed on ...
150 views

### Can money technically flow in and out of stocks or asset classes?

For every buyer, there is a seller. Money can't 'flow' in and out of a stock, only the price changes. Is this applicable in the context of asset classes, for example, money market funds versus stocks? ...
116 views

### Rolling window Kendall's tau against APARCH(1,1) correlation

Assume you want to forecast the correlation matrix of a stocks' basket (say 15 ~ 20 stocks from different sectors); assume you need to forecast at $T$ days because you will use the forecast ouput with ...
239 views

### How to calculate probability of touching a take-profit without touching a stop-loss?

How to calculate probability of touching a take-profit without touching a stop-loss (no-dividend stock, infinite time)?
700 views

### Why the interest rate for put-call parity is not constant?

Usimg the put-call parity $C - P = S - K · e^{-rt}$ I tried to estimate the value of $e^{-rt}$, the present value of a zero-coupon bond that matures to 1 in time $t$: $e^{-rt} = (P - C + S) / K$ ...
347 views

I am trying to do some performance attribution for a few portfolios we manage. What I am trying to examine are three different sources of returns: The general asset allocation Security Selection The ...
867 views

Suppose the trade is between Index Options of two Indices X and Y which are quite similar (but not exactly). So for the equivalent strikes, one can quote option on Index X and cover in Index Y. But ...
139 views

### Combining covariances?

Consider an economy with assets with return processes $A$, $B$, $C$, $D$. Consider a weighted index with return process $I=aA + bB + cC + dD$ where $a,b,c,d$ are coefficients, and $a+b+c+d = 1$. ...
1k views

### Analyzing tick data

What are some of the commonly used techniques to analyze tick data? I am looking at tick data to see how the quotes/ mid-price evolves due to certain events in the market. Since tick data is ...
428 views

### Is it possible to “steal” financial data on publicly traded companies off the internet? Legally, I mean, what is the truth about “data” as a property

What constitutes "stealing" when it comes to publicly posted financial data? I think there are three instances of this that we can individually vet: a.) you physically broke into a location or ...
84 views

### Generating Return Streams for stress testing

There is never enough market data for testing. And sampling from user defined distribution is a hotly debated subject as which distribution does the market really go with? There are many ways to ...
890 views

I'm backtesting an algorithm for trading nasdaq stocks, and would like to take into account the spread. I am using historical data from yahoo, which contains: open, high, low, close, volume, adj. ...
2k views

### Why would a 6M LIBOR rate be significantly above 3M LIBOR, ED futures and swap rates?

Just was just looking at the various interest rates and noticed this: ...
353 views

### constructing a minimum variance portfolio

Assume a US-based company has sold something to a Norwegian company. It will receive 1M Norwegian Kroner in two months, and would like to hedge this future cash flow against currency exchange risk. ...
1k views

### When to use Monte Carlo simulation over analytical methods for options pricing?

I've been using Monte Carlo simulation (MC) for pricing vanilla options with non-lognormal underlyings returns. I'm tempted to start using MC as my primary option-valuating technique as I can get ...
There's two studies that test the same thing in different markets (i.e. they apply the identical methodology). They state: 1) "$R_{mt}$ is the equally weighted average stock return in the dual-listed ...